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ZymoGenetics may have a sleeper in its pipeline about to wake up. The Seattle biotech company is reporting today that its experimental drug, called peg-interferon lambda, was able to kill the hepatitis C virus at all three doses tested in a small clinical trial without the flu-like symptoms associated with standard interferon alpha drugs used against the disease.

The study enrolled 18 patients total, with three groups of six patients each, ZymoGenetics said today in a poster presentation at the American Association for the Study of Liver Diseases meeting in San Francisco. The study found the drug was well-tolerated in all patient groups, and no patients dropped out of the study because of side effects, the company said. There were no signs that the drug caused fevers or damage to blood cell counts, the company said.

ZymoGenetics (NASDAQ: ZGEN) has taken a beating in the market this year, after its first marketed product for surgical bleeding got off to a slow start, and another drug candidate failed in a clinical trial of lupus for the kidneys. It is pinning new hope on peg interferon lambda, as I wrote about in this feature story in September. The company is hopeful that the new version of interferon could someday replace the standard interferons, which are the backbone of hepatitis C therapy today, but cause flu-like symptoms, need to be taken for almost a year, and only cure patients a little more than one-third of the time. What’s more, the side effects are so bad that only a fraction of the estimated 3.2 million people infected in the U.S. seek treatment, so any way to get its virus-killing ability with fewer side effects could open up a large potential market.

“Peg-interferon lambda has become one of our company’s key assets,” said Nicole Onetto, ZymoGenetics’ chief medical officer, in a company statement. “Based on these early results, we’re encouraged by the potential for treating patients with hepatitis C.”

The ZymoGenetics drug showed anti-viral activity in all patient groups, with the best action in a low dose of 1.5 micrograms per kilogram of body weight, taken as a weekly injection under the skin. The most common side effects were mild fatigue and muscle pain, the company said. Based on the results, ZymoGenetics is speeding up the second part of the study, in which it tests peg-interferon lambda in combination with ribavirin, another anti-viral that is a standard drug given in combination with interferons.

ZymoGenetics has said it plans to seek a partner to co-develop peg-interferon lambda, and now it has more data backing up its hypothesis that this could offer a less-toxic alternative to the standard treatment. However, it could take until 2015 to bring this drug to market, according to analyst Kevin DeGeeter of Oppenheimer & Co., who rates the company “underperform.”

ZymoGenetics’ stock surged 18 percent today in advance of this presentation, so somebody out there must think this drug is going to be a winner. We’ll see whether ZymoGenetics can make the case that the drug is worthy of a lucrative partnership, or whether it will have to carry the ball further downfield before a big drugmaker is willing to start writing big checks to get a piece of the action.